Gambling revenue from e-pulltabs falls victim to old-school habits

The patrons at Porky's Bar on the East Side of St. Paul really like electronic pulltab gambling.

Guys like college maintenance worker Jim Brees make for steady business on Friday and Saturday nights, when $500 jackpots are a regular cause for celebration, as owner Jason Thompson tells it.

"We had five, six people waiting in line for the e-tab machine," he said of a recent Friday night. "They were sitting in the booths waiting for people to get done. One lady, I think, waited for two hours."

That kind of business helped make Porky's the state capital of electronic pulltabs for most of this year. Patrons bet more than $86,000 on the games in February alone.

Dan Day, another owner, says he thinks Minnesota has picked a winner in the new games.

"It is like the little casino on the East Side, in that they don't have to travel on a bus trip or a car ride to Treasure Island, Mystic Lake, or whateverm" Day says. "I tell you, these devices are good... The numbers that the state are looking [for], will be there."

But for every Porky's, there's a place like the Wild Onion, a popular bar in St. Paul. The machines there took in just $550 in bets in February. And in the latest data available, the gambling machines were in only about 200 bars -- out of 2,500 the state expected them to be in.

Porky's BarMPR Photo/Tim Nelson

That's just one sign of now that the reality of new gambling is falling far short of its promise. Some blame cost, others say the games aren't as much fun. But behind the scenes, the games are becoming a casualty of the battle between old school paper pulltab suppliers and the internet-driven upstarts trying to reboot the industry.

The stakes are high.

Sales taxes from both electronic pulltabs and linked bingo are earmarked to fund the state's $350 million share of the new Vikings stadium. It's the biggest public works project in state history.

For now, the taxpayer's share is just a pledge. The state is planning to borrow the money in a bond sale in August, and hasn't had to make any mortgage payments. But the shortfall in gambling revenue is getting more critical as an October groundbreaking for the new stadium approaches.

And, in some ways, that shortfall has been getting worse, not better. New installations fell from about three bars every two days in January to less than a bar a day in Feburary, according to data from the Minnesota Gambling Control Board.

The games were also projected to take about $225 in bets a day -- that daily "handle" has declined by $110, to an average of $91, since October. Suppliers of pulltab machines elsewhere, like Virginia and Idaho, say that optimistic projection parallels actual revenue their machines earn. But few of the machines in Minnesota -- the first state in the U.S. to try the games -- are toeing that mark.

There are a lot of ideas about why electronic pulltabs aren't panning out, and why gamblers, suppliers and charities have shown tepid interest in the games. Some argue the upfront costs of installing the games in the bars and the ambiguous regulatory system are prohibitive. Others say there's nothing wrong, other than the state's unrealistic expectation of fast money and a rapid shift to electronic pulltab gambling.

Some gamblers prefer paper pulltabs. Brad Johnson, an X-ray technician in Minneapolis, said he lost $5 trying out e-pulltabs before he figured out how they worked. He said he'd rather just buy a stack of pulltabs and split them up among friends.

"It was sort of a clumsy thing, like I had to have the waitress come over, give her my money, take my ID away from me come back with the electronic machine, it was an iPad," Johnson said.

Some makers say that human interaction -- unlike kiosk-based electronic pulltabs around the world -- creates financial friction that is keeping sales down.

Minnesota's long-established, billion-dollar charitable gambling industry, is based mostly on paper pulltabs. For now, paper pulltab sales are up, but those games are expected to eventually decline if the electronic games succeed. And they're not going without a fight.

Existing paper pulltab suppliers have lobbied against the change, advised their long-time customers to avoid the new games and struggled to navigate the regulatory process when they DO decide to get into electronics.

Jon Latcham owns Shoreview-based 3 Diamond Company, the state's largest paper pulltab distributor. He recalled a meeting in 2012 in which Tom Barrett, the director of the state Gambling Control Board, asked paper pulltab distributors to weigh in on the move to electronic.

"Tom Barrett asked distributors to raise their hands either for or against electronics. Everyone that attended that meeting raised their hand and indicated they were not for it," Latcham said, adding that he referred to himself as the biggest opponent of e-pulltabs.

But Latcham has since come around. His firm 3 Diamond offers its own line of games, and was the first to offer electronic linked bingo last week. But he concedes he's in no hurry to roll the games out.

"The focus is on people trying to save their butts. We've got all to get more sites. We've got to get more people involved. Fast is not better. We won't go that route. I don't need 200 sites tomorrow," Latcham said.

And Latcham has even hinted there's something wrong with the roll out. Last month, he accused the Gambling Control Board and rival suppliers, Acres and Express Games, of corruption. They're the state's biggest, and first electronic pulltab suppliers.

"There's always going to be questions of an inside deal that was cut that gave people priority to get up and running long before those that have been around for a long time were able to," Latcham said. Asked if he thought was true for Express Games and Acres, he said, "I did."

"Absolutely not. Again, this is a vendor that came in three days after the bill was signed, with a signed, paid application to be considered as a licensed manufacturer," said Barrett. Some competitors didn't get their paperwork in order until this month.

Minneapolis-based Express Games and Las Vegas-based Acres -- who offer only electronic pulltabs -- also denied any wrongdoing.

"You know, when you're the guy that's out there producing 95 percent of the sales and all those revenues, there's a huge target on your back," said Jon Weaver founder of Express Games. "So I understand it. It's business. It's competition."

Weaver has said he feels "blackballed" by the charitable gaming industry and blames the negative attention on e-pulltabs for the slowdown in his business. Express Games installed electronic pulltabs in just five new bars in February. By comparison, he did that many installations one day last October.

But he said ultimately it's a cultural change that explains why electronic pulltabs aren't taking off like the state had hoped.

"Anytime you introduce a new technology, there's going to be some a resistance to the change," Weaver said. "It kind of manifests itself when you're meeting with charity gambling managers, who may not even be interested in this new form of entertainment in the state."

But charities claim the conflict between the old and the new is having a real impact on the industry.

James and Sandy Grob operate electronic pulltabs at five sites around the state including at Lucky's 13 in Bloomington and Mendota Heights, and Fabulous Ferns in St. Paul. The Grobs are also gambling managers for American Veterans Post 1, and James Grob said they initially were warned off of electronic pulltabs.

"This game came out. The distributor said, 'Do not get involved with the first one. Let's wait and see what the second guy has to offer.' Now that they've got the second guy out, they're all saying let's wait and see what Bingo is," said Grob. "My perspective is, they're holding it back because they can't get a piece of the pie."

And as long as that's true, he said, Minnesota and the stadium won't be getting a slice of the action, either.